The Finances section of your business plan is one of the most important sections you will write. Not only do you need to show potential investors or lenders that your business idea is financially viable, but you need to have a solid plan in place for your own benefit, to ensure your long-term success. Here are a few things you should include in the Finances section of your business plan.
Amount of Funding Required
How much funding do you need for your business? This applies whether you are approaching investors or lenders, or if you are self-funding. It needs to be a realistic figure that is going to give you the resources you need to get started, so make sure you think carefully about everything you will need to pay for. You may also need to consider how long you think it will be before you begin making a profit, as the longer this takes, the more money you may need to run your business during this time. You may find it easier to look at other parts of your finances before you settle on a figure.
Reason and Use for Funding
Investors will want to know what the money they put into your business will be used for. It is also a good idea to know this for yourself, so that you don’t end up spending too much money in one area and leaving yourself with not enough money for another. For example, you don’t want to overspend on inventory only to find you have no money left for marketing. Show your lenders that you’ll be putting their money to good use, and create a plan to make sure you stick to this.
Financial Projections
Perhaps even more important than showing lenders what you’ll spend their money on, is showing them that they will get their money back from you. Your financial forecast and projections will help you with this. Again, this section should be credible – investors and lenders will not be won over by unrealistic projections. You can show that your projections are realistic by splitting them down into components, such as market segments or sales channels. One large figure may seem like too much of a guess, but breaking down each part of your business and making estimates for them all can make your projections seem more accurate. You should also consider your sales forecast and your expenses, as well as interest and taxes so that your projections are as realistic as possible.
Balance Sheet
Your balance sheet includes assets and liabilities that don’t appear in your profit and loss statements. This may include startup assets, inventory, property, equipment, accounts payable, and accounts receivable. Balance sheets are an important part of the Finances section of your business plan and it helps you to take all of your incomings and outgoings into consideration.
Cash Flow Statements
Your cash flow statement shows money flowing in and out of your business. Cash flow is important because you may be making a profit, but if you don’t have enough money in your accounts at the right time, you could have trouble paying your bills. Your cash flow will be based on your sales forecast, balance sheet items, and other components. Break down your cash flow statement into twelve months and think carefully about when you will have money coming in and going out. For example, when will your expenses be due to be paid, and when will your customers pay you?
Breakeven Analysis
The point where you breakeven is when your expenses match your sales volume. For your business to be viable it needs to bring in more revenue than the total of your expenses. The point when you expect to breakeven will tell investors when (or if) they will receive a return on their investment. This is how you can show that your business is worth investing in.
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